11.3 Clustering of AT-TPC events
11.3.3 Comparing clustering methods
a b c d CiTUR - Centre of Tourism Research, Development and Innovation
Escola Superior de Turismo e Tecnologia do Mar, Santuário N. S.ra dos Remédios, 2520-641 Peniche
Abstract
The hospitality companies have had substantial growth in the tourism sector which gives them a large part of the revenue generated by the sector. In this regard, its impact, whether negative or positive, is quite high and generates a response to a need felt by agents of the environment in which it operates.
As a short-term sustainability indicator, the liquidity level of a company demonstrates its ability to repay its obligations, being a great management support for decision making and anticipation of financial problems that may arise. Considering the volatility of hotel companies, greater importance is given to the study of liquidity.
The main liquidity ratios of Portuguese hotels in the 2010-2017 period will be analysed; data was collected on July 4, 2019, on the SABI platform and the original sample is composed of 2161 hotel companies registered with two Portuguese economic activity codes (CAE), “55111 - Hotels with restaurant” and “55121 - Hotels without restaurant”.
The assessment of liquidity level will be important to decision makers understand if there are differences between hotels with or without restaurant and among the Portuguese districts were hotels are located.
The results of this study are expected to be of assistance to hotel managers as decisions taken within the organization can be more deliberate and informed.
Keywords:
Short-term sustainability; liquidity; hotel companies; hospitality industry.
Introduction
Liquidity ratios are an extremely important tool in the management of a company, as we can predict some situations that may arise during the activity. The ability to cope with economic crises is an important issue for hotel companies to consider.
It is intended that in hotel companies, as in companies in general, their accounts are balanced. An essential part of the balanced situation corresponds to the liquidity, which means capacity to meet its commitments with creditors in the short-term.
In hospitality, liquidity assessment is an important tool for day-to-day management. This article aims to study the liquidity level of Portuguese hospitality companies and, in order to give tools to hoteliers, it will be done regarding if there are differences between hotels with or without restaurant and among the Portuguese districts were hotels are located.
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the sample under study with values understood and equated for the 5-year period (2013-2017) allow reliable ratios that will be useful for hotel managers’ decisions.
The relevance of this article is based on the need for studies of Portuguese hotel companies and their components. It may serve as a basis to assess investments in the lodging industry, selecting the location with higher liquidity and consider whether or not the hotel should have a restaurant.
Literature Review
Profitability, liquidity and solvency are measuring ratios that are named as the most significant indicators. They do not have a pre-established order of importance because they are complementary when related their importance in a company (Altman, 1968). However, all companies should check their ability to pay the debts when they need to be paid, this phenomenon is called as liquidity of a company and this is done by liquidity ratios (Jagels & Coltman, 2004).
The profitability indicates a lot of important information to the companies. However, not always is synonym of bankrupt when is poor, in cases like this it is crucial to resort to liquidity to consider this like a serious or not serious information. In several firms is clearly evident when something pop-ups and it is not normal (Altman, 1968).
Once liquidity is the ability of converting an asset into cash when a period of countability year ends is also the reference to the ability to pay in cash or something that can easily be returned in cash. The liquidity has three forms that has to be consider: the time that the asset is in conditions to be again convertible as cash; the quality of the asset to be converted; and the value that we can recover with that asset because sometimes is not fair (Pareja, 2012).
The income statement comprises all the results of a company combining all the income and expenses existing in a given period that later reports the results of operations and clearly identifies what generates or does not generate revenue (Jagels & Coltman, 2004). The same authors argue that it is important to aim that any future economic event or issue that has an impact on the company or organization in relation to its results or, as a result, its liquidity should be alerted to all potential investors and/or the positioning of the company.
Liquidity means the ability of a company to meet its financial commitments within agreed terms. According to Brealey & Myers (2000), liquidity is a very important research field in Corporate Finance, because proper liquidity management is an essential premise for business continuity. In the same sense, Matarazzo (2003) states that the result of liquidity ratios indicates the company's ability to withstand eventual setbacks or its autonomy from lenders. Indeed, with the constant changes in the economic environment, the need for changes to business models is created. Most of the time, company managers adopt new behaviour and management standards, aiming at the success of their activities (Braga & Marques, 2001).
In this regard, and in order to make the best decisions, it is important to consider the capital structure as well as the liquidity of the company (Smart, Megginson & Gitman, 2007). The capital structure is generally chosen by companies based on the industry average. According to Hovakimian, Opler, & Titman (2001), this is due to an intraindustrial leverage pattern. Rajan & Zingales (1995) point out, on the one hand, larger companies as those that rely more on liabilities. On the other hand, the authors refer to growing companies as having increasing cash flows, so that they mostly resort to internal financing for their investments. Such growth, according to Frank & Goyal (2009), implies lower debts, a theory corroborated by Kayhan & Titman (2007), claiming that loans are less used the greater the corporate profit.
The relationship between cash flows and liquidity works in much the same way. Cash flow analysis allows understanding of the liquidity formation chain (Sá, 2004). According to Jensen (1986), the reduction in liabilities may be financed by a surplus of cash flows. The greater the availability of cash flows, the lower the need for external financing (Ferreira & Vilela, 2004).
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cash-flow, several authors cited by Sá (2004) expressed their views on this topic, as shown in Table 1:
Table 1: Perception of cash-flow
Author Perception
Gitman (1997) Refers to cash flow as the backbone of the company, claiming that only an analysis of it can meet the company's financial needs.
King (1994) Addresses the long-term theme, in which he says that eventually cash flows and profit will be equal over the long term. However, quotes Keynes "Yes, but in the long run we could all be dead".
Smith (1994) Takes a more pragmatic position in that he compares the balance sheet with cash flows, and where the latter are facts.
Falcini (1992) Associates cash flows with a logic in which investors must consider not only operating income or accounting profit but also cash flows. He also adds that investors who primarily use cash flows cash flow but ultimately based on profit for decision making "are weighing oranges counting apples”.
Drucker (1992) State that a company can operate without profits as long as its cash flows meet the needs. However, it is not possible to happen exactly the opposite because it is no longer possible to support the company.
Goldratt & Cox (1990) Claim that even with a profit in a company it can go bankrupt. A bad cash flow is usually what kills the rest of a company in bad situations.
Hendriksen (1982) Considers that the development of cash flow statements causes large discrepancies between the posting period and when the flows existed.
Source: Adapted from Sá (2004, 9-11)
According to Gitman (1997) a liquidity ratio can be more credible if supported by a good cash flow forecast. The author, states that the required liquidity is much lower in cases where there is an almost accurate forecast of cash flows. Nevertheless, Lopes de Sá (1998) states that, even with the aid of cash flow statement, there are no predefined models that prove the ideal ratio of liquidity, so that a system of equilibrium can be verified.
Methodology
Firstly, a literature review was performed, in which it is possible to associate concepts and techniques of liquidity ratios/indicators with studies previously done and developed.
Data was collected on July 4, 2019, on the SABI platform, from Bureau Van Dijk (A Moody’s Analytics Company), and the original sample was composed by 2161 hotel companies registered with two Portuguese economic activity codes (CAE), “55111 - Hotels with restaurant” and “55121 - Hotels without restaurant” between 2010 and 2017. Afterwards, and after exporting and processing the data, a large part of the sample (1059 companies) was excluded when the chosen liquidity ratios were calculated. The reason for the exclusion is the lack of information, such as incomplete or non-existent data.
The main liquidity ratios of Portuguese hotels in the 2013-2017 period were calculated, but there were not considered 1059 companies in which data wasn´t available or is incomplete to calculate the liquidity ratios. For this reason, the sample was stablished in 1102 companies and the 2010-2012 period wasn´t
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Portuguese hotel companies are able to settle current liabilities with their cash, bank accounts and accounts receivable or, if considered inventories, with their current assets. By other words, to understand the liquidity level assessing the net working capital and the liquidity margin.
The ratios that were used to stablish the liquidity of Portuguese hotel companies were: 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑁𝑒𝑡 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 = 𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝐿𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 being 𝑄𝑢𝑖𝑐𝑘 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
In order to allow responding to the proposed objectives for the article, after calculating the ratios the sample was organised by districts and separated according to whether or not hotels have a restaurant.
Regarding the level of liquidity in the Portuguese hospitality industry, the results highlight differences by region (district) which allows a more complete analysis. Studying the relationship between hotels with and without restaurants (CAE 55111 and 55121) and financial liquidity ratios will provide managers with an important decision support tool.